In a recent webinar for leaders of procurement, commercial and contract management functions, over 70% indicated that they feel under pressure to deliver more business value. Just 12% felt confident that they were already on a path to greater stability and success.
With so much change going on around us, it is no wonder that many groups – and their leaders – feel insecure. As if the general turmoil in the business environment wasn’t enough, we also face the uncertainty of new technologies and the extent to which they will ‘steal our jobs’ (as I highlighted in a previous blog, our estimate at IACCM is that there will be a net loss of some 35% of current contract management / legal / procurement roles over the next 5 years).
So is this a cause for gloom and despondency? Only if you decide to give up and wait for your fate to overtake you. There are many things that should encourage us. One is that many executives have recognized that increased uncertainty demands stronger and deeper commercial and contract management capabilities; they are increasingly core to profitability. Second is that the jobs which disappear will be those that are routine. They will in many cases be replaced by much more rewarding jobs, drawing on the outputs from that technology.
The urgent need is for leaders and their teams to re-examine their role. At the same time as 70% say they are under pressure to increase value, 82% say that their biggest challenge is demonstrating that they have measurable value. In other words, their contribution is either not currently measured, or uses measures that no one really accepts as reflecting business value – for example, they count the number of transactions or declare theoretical savings.
I have written past blogs on this topic, setting out a range of methods and measures to illustrate value. It is frustrating when research clearly shows the scale of value erosion that comes from poorly structured and managed trading relationships that the practitioner community does not then take that data and act upon it. It seems to be frustrating executives as well, because many believe they have indicated their support for improvement, yet staff groups fail to act on the opportunity.
However, I am encouraged by the extent to which IACCM corporate members are starting to undertake Capability Assessments – a sure way to grasp their current alignment to business value and to obtain meaning ful benchmarks that lead to specific improvement plans. Many of these start to generate instant visibility for the role that contracts, commercial, legal and procurement will play in the businesses of tomorrow. While other may be proclaiming the death of procurement, legal and contract management, we see renewed life – so long as we step up to the challenge of demonstrating our value.
If you would like to learn more about the IACCM Capability Maturity Assessment and examples of the improvements it delivers, contact email@example.com.
For a role that apparently does not exist, commercial management appears remarkably healthy and resilient. Not only are the numbers of commercial managers growing, but so is the pay rate relative to some of the comparable roles within business.
It is certainly not new news that the business world is changing fast and with such rapid change comes complexity. Often that complexity is a direct result of inconsistent or outdated policies, practices and operational models. For example, new regulations or entry to new markets inevitably places stress on existing processes, skills or capabilities. Similarly, fast-changing business models challenge organizational designs and structures – for example, the switch from integrated enterprises to highly outsourced supply networks or the shift from selling products to the supply of solutions or services.
It is in this context that commercial management becomes of such critical importance. At their best, commercial managers are the people who reconcile business needs with capabilities. They do this by ensuring that trading relationships are compatible with the business and with each other. It is, after all, quite pointless to win business on which you cannot perform, or to contract with a supplier for something that doesn’t meet requirements. But the role goes beyond deals and transactions; it also involves testing capability (internal and external) to identify the need for change in policies, practices or procedures. Senior and experienced commercial managers are change agents; they not only challenge the business to operate with integrity and within acceptable risk boundaries, they also promote continuous improvement through their appreciation of markets and the sources of revenue and margin.
Given this background, it is interesting that some professional associations try to deny the existence of commercial management as a role. They prefer to proclaim on the one hand its irrelevance and on the other that ‘we do this already’ – even when it is patently obvious they do not. The reason for this is presumably because they see commercial management as a threat to their influence. That is sad, because it has the effect of limiting the horizons and opportunities for their members.
In my view, the purpose of a professional association is to advance the interests of its members by ensuring their relevance to the world of today and the future, not to remain mired in the past, a constraint on change. As we advance into the era of automation, robots and machine learning, successful professionals will be those who focus on enabling others and streamlining their organization’s operations. They will be at the forefront in creating innovative approaches to knowledge dissemination and automating control, focusing their own efforts on the management of change and the simplification of complexity. They will be people who understand stakeholders, who operate as integrators and synthesizers, who can reconcile perspectives and develop creative solutions. It is these forces that are driving the growth of commercial management – because it is very much a 21st century career.
Today sees the start of another World Economic Forum, the annual meeting in Davos, Switzerland.
Davos itself is a far from inspiring town – and this year, the selected ‘leadership priorities’ seem all too predictable. They are based around the demands of a ‘complex, uncertain and anxious world’ which requires that leaders ‘must be receptive to signals that are constantly arriving from an ever-changing landscape’. The agenda calls for leaders with ‘vision and a way forward, so that people can imagine a better future’. The overall theme for the Forum is ‘Responsive and Responsible Leadership’. Perhaps it will start with public declarations of massive pay cuts for the executives attending and a promise of new management and measurement systems that inspire ethical behaviour. But somehow, I doubt it.
While not questioning any of the sentiments that underpin this year’s theme, I wonder what hole any leader unaware of them has been hiding in. Equally, I would expect anyone at Davos to be already far advanced in addressing the ‘five key challenges’ that are being discussed. Those challenges are:
- Coming to grips with the Fourth Industrial Revolution, which is ‘redefining entire industries and creating new ones’. This is the theme generated by ground-breaking technologies such as artificial intelligence, self-driving cars, robotics and the Internet of Things. It not only transforms business, but also adds to social divisions.
- The need for a ‘dynamic, inclusive multi-stakeholder global governance system. This represents a call for collaboration and cooperation on a new scale, reflecting the realities of a globally networked world. Perhaps a good start here might be to announce the scrapping of elitist forums such as Davos!
- Restoring global growth. Quite obviously, growth is fundamental to improved living standards and today’s growing levels of structural unemployment challenge social inclusion and stability.
- A reform of market capitalism, restoring the compact between business and society. Leaders are urged to address the challenges of short-termism, wealth inequality and cronyism. Indeed important goals, yet hard to see that those attending Davos will undertake the self-surgery required to shift their own behavior and values. It may be another, newly emergent group of leaders who will eventually create the vision necessary to address these weaknesses.
- “The pervasive crisis in identity formation” is the final challenge – the erosion of traditional norms and beliefs and ‘a sense of belonging’. This, it is suggested, has generated the populism seen in 2016, which threatens social stability and prosperity. Of course, seen another way, it is exactly the challenge that was needed to force today’s leaders to stop taking the world for granted and to demand a rebalancing of power and decision-making – in other words a good and perhaps inevitable uprising of ‘the masses’.
To me, this list simply reflects the extent to which the leaders at Davos are actually devoid of meaningful ideas. Perhaps the real message is that it is time for new ideas and new leaders – perhaps a group of people who do not need the luxury and extravagance of Davos to demonstrate their concern for broader human welfare.
Are Supply Chain, Procurement, and IT on different Planets from Category Management and Operations?
That’s a question posed by Daryl Fullerton in a recent article. Daryl concludes that the answer is ‘yes’ and that this results in the failure of many performance management and relationship management (SRM) initiatives. He offers some great examples and explores where improvements need to be made.
But it seems to me that the real issue is that each of these entities – Procurement, Supply Chain, Category Managers, SRM managers etc. – sees itself as competing with the others. Rather than recognizing they collectively contribute to an integrated process, they instead fight over relative power and status. I had an example of this just last week when speaking with an executive from a major retailer. He explained how there was an on-going battle between Procurement and SRM over who should undertake supplier selection on major projects. His story was typical of the tensions I encounter in so many organizations, where confrontations are about power, not business interests.
I remember the days when I came at business problems from the perspective of organizational design. It seemed that if only you could wrestle power away from those idiots in sales, or project management or wherever, then everything would be great. It took a very wise and seasoned senior executive to help me understand that organization is actually the last thing you should look at, because it is always an area of contention and political in-fighting. He taught me to think in terms of the overall process, since it is much harder for people to argue against improvements to process.
Many of the ‘specialisms’ we see emerging are really more about the urge for individuals to gain influence and security than about a business need. Hence it is not surprising when many fail to improve business performance – indeed, as Daryl observes, they may even damage performance. The complexity of procurement today – and its potential to add value – is being jeopardized by a failure to think in terms of the overall process. As my mentor observed, ‘Never let good business judgment get in the way of internal politics’.
How to remain competitive? That is the challenge for every business. And unless you happen to have some unique form of advantage, competition tends to depend on sources of commercial differentiation – greater reliability, superior support services, lower prices or a recognized brand. So part of the journey towards competitive differentiation is the development of new commercial models and contract offerings.
As-a-service contracting is an example of this journey. It is another step in the evolution away from a world where suppliers offered products and made the customer responsible for their use and performance. It was only 25 years ago that the technology sector denied even basic commitments such as interoperability between products. Customers were required to sign ‘Selection and Use’ clauses that eliminated supplier responsibility for the results achieved. Then, we started to see the emergence of solution selling, where products and services were bundled. Much of the drive behind this was price pressure and ‘commoditization’.
At about the same time, ‘outsourcing’ started to develop – moving entire processes or business activities to a supplier and thereby shifting responsibility for performance. But still the results were often disappointing, the costs higher than expected and the levels of flexibility and innovation challenging. ‘As-a-service’ models seek to address some of those issues – though it seems they are having varying levels of success.
A survey being conducted by IACCM and advisory firm ISG is revealing some fascinating insights to the realities of ‘as-a-service’ contracts. It illustrates a significant divide between customer expectations and aspirations and business reality. For example, in many cases anticipated savings are not being realised because customers do not implement use controls; levels of flexibility are often not as great as expected or carry a higher cost; security concerns may be hard to address unless the customer is willing to think in new and different ways.
One of the key challenges that has emerged is the short supply of individuals with the knowledge needed to structure and negotiate ‘as-a-service’ contracts. In a webinar yesterday, it became evident that this model remains relatively complex and high-risk because there are not yet any industry norms or standards (what should the terms and conditions look like? What are the characteristics of a good supplier?) and both suppliers and buyers are having the wrong conversations (sales people either don’t understand the key issues or are reluctant to discuss them with their customers).
The IACCM/ISG survey remains open for input until the end of January and it promises valuable insights and advice for both suppliers and customers of ‘as-a-service’ offerings. Those who participate will receive a copy of the report.
As we enter the new year, it is worth taking a moment to consider where we are coming from. I don’t support the view of many that 2016 was a year to forget. Certainly it was turbulent, unsettling and carried its share of human suffering and distress. Yet those are points on which we should reflect because they represent the challenges – and the opportunities – that we face going forward.
In general, society has embraced digital technology. It has permeated so many aspects of life and business. One key area is globalization, whether in the context of opening world markets or creating greater international awareness. But as with all innovation, the consequences are often unexpected and hard to predict. Research in 2016 pointed to one of the growing divides in human society – the fact that people in emerging markets increasingly see themselves as global citizens, while the trend in industrialized nations is in general the reverse. This is proving divisive within communities and has driven unexpected political consequences. Some view these as temporary set-backs, but perhaps they are indicators of something more fundamental and the need to question prevailing assumptions of economic and social progress.
As I look at the world from the perspective of those responsible for contract and commercial management, I see some fundamental threats and opportunities. The business landscape seems certain to remain turbulent, with uncertainties affecting geopolitical conditions and established trading terms and relationships. This demands far more intelligent risk management; far more agile capabilities; far greater commercial imagination; far better structured contracts and trading relationships. Those who win will be those who develop adaptive approaches to commercial innovation and governance, handling risks rather than avoiding them.
If this is the environment confronting senior management, they will certainly be looking for talented individuals to develop answers. Will they turn to their commercial staff – procurement, legal, contract management – as a source of creativity? Or will they see those functions as a source of the problem – rigid, oriented towards the rules and compliance policies of the past?
The quality of contract and commercial management will be a major competitive differentiator in the year ahead. One of the big and exciting changes that started to emerge in 2016 was the nature of the technology now available to support these disciplines. The growing power of automation and analytics is transforming the insight that a modern contract management function can deliver. It represents a potential turning point for business operations and the potential to end the outdated views of classical legal and procurement theory.
When I look at the year ahead, I cannot fail to recall a conversation that I had last year with a Turkish entrepreneur. I commented on how challenging it must be to run an established business in Turkey, surrounded by such high levels of political and social disorder, warfare on its borders, tense relationships with most international trading partners. He looked at me strangely before saying “Times of uncertainty are times of real opportunity. While others worry about risk, I take advantage of it.”
Those sentiments should be at the forefront of contract and commercial management thinking as we enter 2017.
So what happens when you ask a child to hurry up, or criticize a teenager for not getting a job done? Is their automatic reaction to jump right to it and promise to do better next time, or to find an excuse (or better still, someone else to blame)?
Whenever we are told we need to do something faster, most of us have a tendency to find fault in others. Certainly lead times for getting to contract are a case in point; there are a myriad of factors, multiple stakeholders and endless good reasons why decisions can’t be made more quickly. But executive impatience is growing and competitive forces are unrelenting, resulting in a growing number of IACCM members wanting to know ‘how do we develop an agile organization?’.
I am confident that this will become a steadily more pressing topic in 2017 and commercial groups – legal, procurement, contract management – will need to focus more on how they empower the business, far less on how they physically intervene. In order to do this effectively, they must fully understand the process of which they are part and the outcomes the business is trying to achieve. Here is a brief example.
Most of us will have observed the growth in recent years of the use of NDAs (non-disclosure agreements). Whether correectly or not, organizations have decided that it is a good risk management procedure to establish NDAs with many of their counter-parties in conjunction with any form of bid or proposal activity. As the volume has grown, most organizations have developed standard templates. Some have automated the process, enabling completion in just a few hours. Others have delegated. A couple of weeks ago, one of my colleagues was talking with a group in the delegation camp. They explained that their legal function had issued some standard templates with the instruction that they must be used whenever there might be any exchange of commercial information. Unfortunately, that was the limit of their guidance. Therefore this particular group maintains no record of what information is received or provided. They agree exceptions or changes to the templates without any point of reference. And, as a product research team, they give no thought to the risk that they may already be developing ideas or products very similar to those being shared from outside(and hence an NDA is absolutely not the thing they want to put in place). So in summary, the NDA process has become a major source of risk – but the good news is that it no longer causes delays.
In this instance, as in many others, commercial teams need to develop their inventory of knowledge and then consider how to apply that knowledge more effectively and efficiently. In the example above, it is clear that the legal team had not considered the level of knowledge among those to whom delegation was being made, nor the context in which it was being applied. As a result, there was no attempt at knowledge transfer and there is no on-going monitoring of performance.
In a recent edition of his Spend Matters newsletter, Peter Smith supports this view of the importance of speed. Writing about Procurement, he makes the following observation: “One prediction – we’re going to hear more about speed and agility in the procurement context in the year ahead. Organisations and our internal stakeholders won’t put up with procurement taking months to choose suppliers or put contracts in place. The world is moving too fast now, organisations must move and change with it, so it is going to be about making good decisions – but making them quickly”. (I wonder whether Spend Matters will soon be re-christened ‘Speed Matters’?)
Certainly, at IACCM, we recognize exactly this need and seek to equip our members with agility through a combination of thought-provoking modules (our ‘Becoming Agile’ series) and wide-ranging advisory and benchmarking services. I’m not sure I entirely agreee with Peter when he says of technology ‘we have not seen anything truly disruptive yet’. Our analysis of the products coming to market in 2016 is that several of them truly are disruptive – but only a few people are grasping the opportunity they represent. Most others are still busy finding excuses for why things are not getting done.